NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
condensed consolidated financial statements include the accounts of OMNIQ Corp, and its wholly owned subsidiaries, referred to herein
as “we,” “us,” “OMNIQ,” or the “Company.” Intercompany accounts and transactions have
been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments,
which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated
financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. These condensed consolidated financial statements and accompanying notes should be read in conjunction with
the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the
year ended December 31, 2022 (the “2022 Form 10-K”).
We
describe our significant accounting policies in Note 2 of the notes to consolidated financial statements in our Annual Report on Form
10-K for the year ended December 31, 2022. During three-month period ended March 31, 2023, there were no significant changes to those
accounting policies.
Recent Accounting Pronouncements
In August
2020, the Financial Statement Accounting Board (the “FASB”) issued ASU 2020-06 which simplifies the accounting for convertible
instruments and its application of the derivatives scope exception for contracts in an entity’s own equity. For contracts in an
entity’s own equity, the new guidance eliminates some of the current requirements for equity classification such as the requirement
that settlement in unregistered shares is permitted. In addition, the new guidance reduces the number of accounting models that require
separating embedded conversion features from convertible instruments, including eliminating the requirement to recognize a beneficial
conversion feature if the conversion feature is in the money and does not require bifurcation as a derivative liability. As a result,
only conversion features accounted for under the substantial premium model and those that require bifurcation will be accounted for separately.
The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires
enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. The Company adopted the
new standards January 1, 2023. The adoption of this standard may allow the Company, in the future and in certain circumstances, to avoid
derivative treatment of warrants and avoid beneficial conversion treatment of certain convertible preferred shares. Adoption of this
standard had no effect on the Company’s financial statements.
Net
Loss Per Common Share
Net
loss per share is provided in accordance with FASB ASC 260-10, “Earnings per Share”. Basic net loss per common share (“EPS”)
is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period.
Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential
common shares were issued, unless doing so is anti-dilutive. The weighted-average number of common shares outstanding for computing basic
EPS for the three-months ended March 31, 2023, and 2022 were 7,749,870 and 7,511,376, respectively. Diluted net loss per share of common
stock is the same as basic net loss per share of common stock because the effects of potentially dilutive securities are antidilutive.
The
following table sets forth the potentially dilutive securities excluded from the computation of diluted net loss per share because such
securities have an anti-dilutive impact due to losses reported as of:
SCHEDULE
OF ANTI DILUTIVE SECURITIES EXCLUDES FROM COMPUTATION OF EARNING PER SHARE
| |
March 31, 2023 | | |
March
31, 2022 | |
Options to purchase common stock | |
| 1,907,583 | | |
| 2,188,750 | |
Warrants to purchase common stock | |
| 1,481,734 | | |
| 1,411,734 | |
Potential shares excluded from diluted net loss per share | |
| 3,389,317 | | |
| 3,600,484 | |
NOTE
2 – LIQUIDITY AND CAPITAL RESOURCES
The
accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. The following are
the principal conditions or events which potentially raise substantial doubt about the company’s ability to continue as a going
concern:
● |
Balancing the need for
operational cash with the need to add additional products |
● |
Timely and cost-effective
development of products |
● |
Working capital deficit
of $39.6 million as of March 31, 2023 |
● |
Accumulated deficit of
$88 million as of March 31, 2023 |
● |
Multiple periods of losses
from operations |
● |
Noncompliance with certain
debt covenants |
These
facts and others have raised concerns about the Company’s ability to continue as a going concern. The Company’s continuation
as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, which we
have successfully accomplished to date.
The
following conditions, plans and actions are currently being implemented to address the Company’s conditions:
● |
Outstanding
warrants exist from prior offerings that could be exercised for cash depending upon the performance of our stock. |
● |
The
Company’s acquisition of Dangot Computers, Ltd. has improved the balance sheet, profitability, and cash flow and is expected
to help the Company as a whole to generate positive cash flows from operations for the foreseeable future. |
● |
The
acquisition of Dangot has added capabilities to the Company which have already transformed into significant new orders in the Parking
segment. Management expects the collaboration and cross sales to contribute to improved revenues and margins. |
● |
Management
is evaluating operating expenses and is developing a plan to reduce expenditures without negatively impacting current operations.
Management has already cut staff by about 5% and will continue to do additional overhead cuts. |
● |
Blue
Star - The Company’s total accounts payable due to Blue Star as of March 31, 2023 was approximately $37 million. Blue Star
is an unsecured creditor, financing a substantial amount the Company’s supply chain demand. Management believes that Blue Star
will continue supplying the Company with preferable credit terms. Blue Star has agreed to the annual interest rate of 5% on invoices
that are past due. As an unsecured creditor of the Company, Blue Star has no incentive to force a liquidation. The Company has enjoyed
a good mutual relationship for the past four years. |
NOTE
3 – CONCENTRATIONS
For
the three-months ended March 31, 2023, and the year ended December 31, 2022, two customers accounted for 30%, respectively, of the Company’s
consolidated revenues.
Accounts
receivable at March 31, 2023 and December 31, 2022 are made up of trade receivables due from customers in the ordinary course of business.
No customer accounted for more than 10% of the outstanding receivables as of March 31, 2023, or December 31, 2022.
For
the three months ended March 31, 2023, and the year ended December 31, 2022 two vendors made up 49% and one vendor made up 48%, respectively,
of our purchases.
NOTE
4 – BUSINESS ACQUISITION
Dangot
Computers Ltd
On April 1, 2022, the Company closed on its acquisition of Dangot and exercised the remaining portion of its option to purchase 23.0%
of the capital stock, thereby making Dangot a fully owned subsidiary of the Company. The Company paid $3,518,000 to purchase the additional
shares. The Company utilized its working capital and a combination of short- and long-term loans.
NOTE
5 – INVENTORY
Inventory
consisted of the following as of:
SCHEDULE OF INVENTORY
In thousands | |
March 31,
2023 | | |
December 31, 2022 | |
| |
| | |
| |
Raw materials | |
$ | 827 | | |
$ | 649 | |
Inventory in transit | |
| 2,062 | | |
| 2,004 | |
Finished goods (less allowance) | |
| 5,996 | | |
| 6,073 | |
Total inventories | |
$ | 8,885 | | |
$ | 8,726 | |
NOTE
6 – CREDIT FACILITIES AND LINE OF CREDIT
We
maintain operating lines of credit, factoring and revolving credit facilities with banks and finance companies to provide us with working
capital.
On
March 25, 2022, we entered into a Business Finance Agreement (the “BFA”) with BridgeBank a division of Western Alliance Bank
(“BridgeBank”) to establish the sale of accounts receivable credit facility, whereby we may obtain short-term financing by
selling and assigning acceptable accounts receivables to BridgeBank. Pursuant to the BFA, the outstanding principal amount of advances
made by BridgeBank at any time shall not exceed $8.5 million. BridgeBank reserves and withholds to 15% of the face amount of each account
purchased in a reserve account.
The
annual interest rate with respect to the daily average balance of unpaid advances outstanding under the BFA (computed on a monthly basis)
is equal to the “Prime Rate” of Wells Fargo Bank N.A. plus 1.5%, plus a monthly fee equal to 0.15% of the average outstanding
balance. The BFA credit facility is collateralized with a senior security interest in certain assets of the Company. The BFA includes
customary representations and warranties and default provisions for transactions of this type.
NOTE
7 – RELATED PARTY NOTES PAYABLE
Related
party notes payable, consisted of the following as of:
SCHEDULE
OF NOTES PAYABLE, RELATED PARTIES
In thousands | |
March 31, 2023 | | |
December 31, 2022 | |
Note payable –Marin | |
$ | 120 | | |
$ | 180 | |
Note payable –Thomet | |
| 75 | | |
| 113 | |
Total notes payable | |
| 195 | | |
| 293 | |
Less current portion | |
| 195 | | |
| 293 | |
Long-term portion | |
$ | - | | |
$ | - | |
Note
Payable -Marin
In
December 2017, we entered into a $660
thousand, 1.89%
annual interest rate note payable (the “Marin Note”) with two individuals from whom we previously acquired their company
(in 2014). The Marin Note is payable in 60
monthly principal payments of $20
thousand beginning in October 2018. Accrued interest payable as of March 31, 2023, was $72
thousand. Accrued interest is payable at maturity.
Note
Payable – Thomet
In
December 2017, we entered into a $750 thousand, zero percent annual interest rate note payable (the “Thomet Note”) with an
individual from whom we previously acquired his company (in 2014). The Thomet Note is payable in 60 monthly principal payments of $13
thousand beginning in October 2018.
NOTE
8 – OTHER NOTES PAYABLE
SCHEDULE
OF OTHER NOTES PAYABLE
(In thousands) | |
March 31, 2023 | | |
|
Note payable other | |
| 10,887 | | |
| 11,627 | |
Total | |
| 10,887 | | |
| 11,627 | |
Less current portion | |
| 10,843 | | |
| 11,572 | |
Long term notes payable | |
$ | 44 | | |
$ | 55 | |
Notes
Payable Other
On
July 29, 2021, the Company entered into a long-term loan from Leumi Bank totalling NIS 7
million, which at the time was approximately $2.16
million. The note accrues interest at the Israeli Prime Rate plus 4.5%
which currently equals 8.25% per annum and is payable in 8
instalments of principal and interest over 4
years. The note is secured by shares of Dangot Computers, Ltd.
On
November 28, 2021, the Company entered into another long-term loan from Leumi Bank totalling NIS 3.5
million, which at the time was approximately
$1.1
million. The note accrues interest at the Israeli
Prime Rate plus 4.5%
which currently equals 8.25% per annum and is payable in 8
instalments of principal and interest over 4
years. The note is secured by shares of Dangot
Computers, Ltd.
On
August 11, 2021, the Company purchased vehicles using cash and financing of NIS 500 thousand, approximately $155 thousand, to be paid
off in monthly interest and principal payments over 5 years. The loan accrues interest at 7.5% per annum and is secured by the vehicles.
As of March 31, 2023, the remaining balance was NIS 292 thousand, approximately $81 thousand.
On
March 27, 2022, the Company entered into another long-term loan from Leumi Bank totalling NIS
3.5 million, which at the time was approximately $1.1
million. The note accrues interest at the Israeli Prime Rate plus 4.5%
which currently equals 8.25% per annum and is payable in 8
instalments of principal and interest over 4
years. The note is secured by shares of Dangot Computers, Ltd.
On September 13, 2022, the Company entered into a
long-term loan from Hapoalim Bank totalling NIS 3 million, which at the time was approximately $0.9 million. The note accrues interest
at 6.03% per annum and is payable in 36 instalments of principal and interest over 3 years.
During the year ended December 31, 2022, the Company
entered into five short term loans totalling NIS 26.8 million, approximately $7.6 million. The note accrues average interest at 6.3% per
annum.
As of March 31, 2023, the Company was not in compliance
with certain financial covenants related to the Bank Leumi and Bank Hapoalim debt. The Company’s failure to comply with these financial
covenants could result in an event of default under its debt agreements. Therefore, we reclassified the total balance as current debt
on the balance sheet. The Company is actively pursuing options to address its noncompliance. The lenders have not requested early repayment
of the loan as of the date when these financial statements were available to be issued.
NOTE
9 – OTHER LIABILITIES
SCHEDULE
OF OTHER LIABILITIES
(In thousands) | |
March 31, 2023 | | |
December 31, 2022 | |
Other vendor payable | |
$ | 803 | | |
$ | 801 | |
Dividend payable | |
| 159 | | |
| 153 | |
Others | |
| 1,085 | | |
| 705 | |
Total other liabilities | |
| 2,047 | | |
| 1,659 | |
Less Current Portion | |
| (1,733 | ) | |
| (1,394 | ) |
Total long term other liabilities | |
$ | 314 | | |
$ | 265 | |
NOTE
10 – STOCKHOLDERS’ EQUITY
PREFERRED
STOCK
Series
A
As
of March 31, 2023, there were 2,000,000 Series A preferred shares designated and no Series A preferred shares outstanding. The board
of directors of the Company (the “Board”) had previously set the voting rights for the Series A preferred stock at 1 share
of preferred to 250 common shares.
Series
B
As
of March 31, 2023, there was 1 preferred share designated and no preferred shares outstanding.
Series
C
As
of March 31, 2023, there were 3,000,000 Series C Preferred Shares (“Series C”) authorized with 502,000 issued and outstanding.
The Series C shares have preferential rights above common shares and the Series B Preferred Shares and is entitled to receive a quarterly
dividend at a rate of $0.06 per share per annum and have a liquidation preference of $1 per share. Series C shares outstanding are convertible
into common stock at the rate of 20 preferred shares to one share of common stock. As of March 31, 2023, the accrued dividends on the
Series C Preferred Stock was $159 thousand.
The
Series C Preferred Stock has a liquidation value and conversion price of $1.00 per share ($20.00 per 20 shares of preferred stock which
convert to one share of common stock) and automatically converts into Common Stock at $1.00 per share ($20.00 per 20 shares of preferred
stock which convert to one share of common stock) in the event that the Company’s common stock has a closing price of $30 per share
for 20 consecutive trading days.
COMMON
STOCK
In
October 2021, OMNIQ’ Board of Directors adopted an Equity Incentive Plan (the “Plan”), as an incentive to retain in
the employ of and attract new employees, directors, officers, consultants, advisors, and employees to the Company. Pursuant to the Plan,
1,118,856 shares of the Company’s common stock, par value $0.001 (the “Shares”), were set aside and reserved for issuance.
The Plan was approved by our stockholders at the December 2021, shareholders’ meeting. On February 25, 2022, the Company granted
792,500 stock options. These options were granted to employees as part of the Company’s Equity Incentive Plan. No options were
issued in the three months ended March 31, 2023.
For
the three months ending March 31, 2023, 210,000 in stock options were exercised in exchange for 155,508 shares of OMNIQ common stock.
No warrants were exercised.
In
December 2015, our Board of Directors approved the OMNIQ. Employee Stock Purchase Plan (the “ESPP”). For the three months
ending March 31, 2023, employees purchased 2,340 shares or $10 thousand of common stock.
On
August 10, 2022, our Board of Directors approved issuing 10,000 shares as part of an employment agreement. Shares were issued January
3, 2023, and valued at $45 thousand.
NOTE
11 – LITIGATION
The
Company was named a defendant in a case involving a former employee who claims he is owed approximately $60 thousand in unpaid commissions.
The Company is defending the case. This case was filed in the Superior Court of the State of California, County of San Diego on October
21, 2020.
The
company is not a party to any other pending material legal proceeding in which it is defending against any claims of material significance.
To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the
Company. To the knowledge of management, no director, executive officer or affiliate of the Company, any owner of record or beneficially
of more than five percent of the Company’s Common Stock is a party adverse to the Company or has a material interest adverse to
the Company in any proceeding.
NOTE
12 – SUBSEQUENT EVENTS